Brazil Economy May Grow 7.5% in 2010 Without Stoking Prices, Mantega Says
Brazil’s economy may expand 7.5 percent this year, up from a previous forecast of 7 percent, as domestic demand ensures non-inflationary growth in coming years, Finance Minister Guido Mantega said.
Mantega, who spoke to investors today in New York, said Brazil is experiencing a sustainable expansion and conditions are in place for 5.5 percent to 6 percent growth in the next four years regardless of how the U.S. economy performs. Mantega said he expects inflation of 5 percent to 5.2 percent this year.
“Brazil is enjoying high quality, sustainable growth, because it doesn’t generate macroeconomic imbalances,” Mantega said. “Investment today is growing almost three times faster than the economy and we’re increasing productivity.”
Latin America’s biggest economy expanded at the fastest pace in more than two decades in the first half of the year, leading central bank policy makers to increase the benchmark interest rate to 10.75 percent from a record 8.75 percent low in March to avoid “overheating”.
To be sure, traders expect the central bank to raise the Selic again next year to keep inflation in check, according to Bloomberg estimates based on interest rate futures contracts.
The central bank will raise the overnight rate to 11.75 percent next year, according to a central bank survey of about 100 economists published yesterday.
Currency
Brazil “doesn’t intend to allow” an excessive gain of the real and may “think of other steps” to stem investment inflows as a strong real may hurt Brazilian industry, Mantega said.
Brazil last week doubled to 4 percent a tax it charges on some foreign inflows. The real has gained 4.5 percent this year to close at 1.6699 per dollar yesterday. Markets are closed in Brazil today due to a holiday.
“We cannot allow abuses in foreign exchange markets, otherwise it will damage Brazilian industry,” Mantega said. “As developed countries take longer to recover, some are engaged in quantitative easing, pouring resources into emerging markets.”
Central bankers and finance ministers met in Washington last week to discuss what Mantega dubbed a “currency war,” caused by currency market interventions undertaken by emerging market governments to cope with “massive inflows” from developed nations. He said Brazil favors a “free-floating” exchange rate.
‘Do Not Believe’
Brazil will meet its fiscal targets this year, Mantega said. The country targets savings of 3.3 percent of gross domestic product to pay interest on its debt, a so-called primary surplus.
“Do not believe when someone tells you that Brazil has a fiscal problem because figures speak louder,” he said.
One of the biggest challenges for Brazil’s government will be to “control spending” to ensure that government expenditures don’t rise faster than investment, Mantega said.
Brazilian President Luiz Inacio Lula da Silva’s former Cabinet chief and handpicked candidate,Dilma Rousseff, has a seven percentage-point lead over rival Jose Serra ahead of the Oct. 31 runoff, a Datafolha poll showed Oct. 9.
To contact the reporter on this story: Iuri Dantas in Brasilia at idantas@bloomberg.net
To contact the editor responsible for this story: Robert Jameson at rjameson@bloomberg.net
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